Buffet sells another $2.5bn in Wells Fargo shares
One of Wells Fargo’s stakeholders, US conglomerate Berkshire Hathaway, has sold 100 million of its shares in the bank since June.
According to a regulatory filing released on Friday, the shares were worth almost $2.5 billion.
Berkshire’s chairman, Warren Buffett, first started buying shares in the Californian bank back in 1989.
A history of selling up
In the second quarter of 2020, Berkshire sold a further 86 million shares. Since the end of 2019, the investor has whittled its stake down to 3.3% from a considerably larger 8.4%. That’s a 60% reduction in its position.
It holds 136 million shares in the bank, compared to the 500 million Wells Fargo shares it held in 2015 and 2016.
Because its stake is now less than 5%, it no longer has to file buys or shares to the US Securities and Exchange Commission.
Buffett and his conglomerate hold their lowest stake in the bank since 2003.
The investor’s ownership position was once as high as 13.3%, back in 1994.
Why is Berkshire selling up?
The value of Berkshire’s investment peaked at $29 billion in 2017. That’s an almost 250% gain on the $11.8 billion it cost the firm to make the investment.
But this year, Wells Fargo shares have fallen by almost half their value. The 136 million shares Berkshire owns were worth less than $3.3 billion on Tuesday.
Wells Fargo reported a net loss of $2.4 billion in the second quarter of this year. This was largely based on the $8.4 billion it has set aside for credit losses as a result of government-backed coronavirus loans.
Despite the bank’s CEO, Charles Scharf, committing to major cost cuts, falling interest rates and lingering scandals have made it hard for Wells Fargo to get back on its feet.
Banks seen as risky investments
Wells Fargo isn’t the only bank Berkshire is reducing its exposure too.
It has also closed its position in Goldman Sachs, and notably reduced its stakes in fellow US banks JP Morgan and PNC Financial.
But Bank of America has not been bunked down Berkshire’s list yet. Rather, the investor has increased its exposure in the bank by $2 billion since the end of the second quarter.
This takes Berkshire’s investment in BoA to $22 billion.
Upping investments in gold and Japan
Whilst Buffett’s firm reduced its exposure to US banks, it did invest more in gold and Japanese trading companies.
The investor is likely trying to secure its cash flow and hedge against inflation. Coin Telegraph argues that the Barrick Gold investment fuels the bull case for bitcoin.
This is largely down to the perception of bitcoin, as store value has correlated with gold since around March 2020.